U.S. stocks sold off on Tuesday as strong jobs and services data led investors to believe the Federal Reserve would cut interest rates just once this year. , government bond yields rose.
Wall Street’s S&P 500 index fell 1.1%, and the tech-heavy Nasdaq Composite Index closed 1.9% lower.
Electric car maker Tesla and semiconductor giant Nvidia were the biggest decliners, dropping more than 4% and 6%, respectively.
In the government bond market, the yield on 10-year U.S. Treasuries, a global benchmark for bond assets, rose 0.08 percentage points to 4.69%, the highest level since April. Rising yields indicate falling prices.
The moves follow reports indicating the world’s largest economy remains healthy and raise further questions about how much the Fed is likely to cut rates this year.
“The bond market is finally coming to terms that the Fed is not going to swoop in and save us all with tons of liquidity and rate cuts,” said Sonal Desai, chief investment officer at Franklin Templeton Fixed Income. said. “(Investors) are looking at the data and slowly absorbing the fact that the economy is actually quite strong.”
The Institute for Supply Management’s Nonmanufacturing Purchasing Managers Index, a measure of activity in the vast U.S. services sector, rose to 54.1 in December, beating economists’ expectations of 53.3. Measurements above 50 indicate expansion.
Separate data from the U.S. Bureau of Labor Statistics showed 8.1 million job openings in November, higher than a forecast of 7.7 million, showing unexpectedly strong demand for U.S. workers.
Investors are watching business activity indicators and the health of the labor market for clues about how quickly the Fed will cut interest rates.
After Tuesday’s data, investors believe the central bank will cut interest rates by a quarter of a percentage point by July, with the chance of another rate cut by the end of the year around 35%. are. Earlier in the day, the probability of a second quarter-point drop was nearly 70%.
The Fed lowered interest rates for the first time from a 23-year high in September and has two more cuts through the end of 2024. However, policymakers in December signaled a slower pace of easing in 2025, highlighting persistent concerns about inflation and unsettling investors.
In a week shortened by Thursday’s stock market closure and half-day bond market, investors are also keeping an eye on the December jobs report.
Economists polled by Reuters expected Friday’s numbers to show U.S. employers added 160,000 new jobs last month, down from 227,000 in November.
“People are anticipating Friday’s nonfarm payrolls numbers and are worried there will be a blowout,” said Franklin Templeton’s Desai.
“If we get some explosive numbers on Friday, we’re going to see (U.S. Treasury yields) rise even further,” he added.